In the past few years, homebuyers have faced a challenging “double whammy” as both mortgage rates and home prices have shot up. This squeeze on affordability has limited the purchasing power of many aspiring homeowners. However, with mortgage rates softening slightly over the past few months, the question now is: Will rates continue to ease or rise again? It’s a question that has kept many of us on the edge of our seats.
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Mortgage interest rates fell to historic lows in 2020 and 2021 during the Covid pandemic. Emergency actions by the Federal Reserve helped push mortgage rates below 3% and kept them there.
The story changed in 2022. With inflation running ultra-hot, mortgage interest rates surged to their highest levels since 2002. According to Freddie Mac’s records, the average 30-year rate jumped from 3.22% in January to a high of 7.08% at the end of October.
Chart represents weekly averages for a 30-year fixed-rate mortgage. Average for 2022-24 as of September 4, 2024. Source: Freddie Mac PMMS. (c) TheMortgageReports.com
Current rates are more than double their all-time low of 2.65% (reached in January 2021). But if we take a step back and look at rates over the long term, they’re still close to the historic average.
Freddie Mac — the main industry source for mortgage rates — has been keeping records since 1971. Between April 1971 and August 2024, 30-year fixed-rate mortgages averaged 7.74%.
Chart represents weekly averages for a 30-year fixed-rate mortgage. Average for 1971-2024 as of September 4, 2024. Source: Freddie Mac PMMS. (c) TheMortgageReports.com
For some perspective on today’s mortgage interest rates, here’s how average 30-year rates have changed from year to year over the past five decades.
| Year | Average 30-Year Rate | Year | Average 30-Year Rate | Year | Average 30-Year Rate |
| 1976 | 8.87% | 1992 | 8.39% | 2008 | 6.03% |
| 1977 | 8.85% | 1993 | 7.31% | 2009 | 5.04% |
| 1978 | 9.64% | 1994 | 8.38% | 2010 | 4.69% |
| 1979 | 11.20% | 1995 | 7.93% | 2011 | 4.45% |
| 1980 | 13.74% | 1996 | 7.81% | 2012 | 3.66% |
| 1981 | 16.63% | 1997 | 7.60% | 2013 | 3.98% |
| 1982 | 16.04% | 1998 | 6.94% | 2014 | 4.17% |
| 1983 | 13.24% | 1999 | 7.44% | 2015 | 3.85% |
| 1984 | 13.88% | 2000 | 8.05% | 2016 | 3.65% |
| 1985 | 12.43% | 2001 | 6.97% | 2017 | 3.99% |
| 1986 | 10.19% | 2002 | 6.54% | 2018 | 4.54% |
| 1987 | 10.21% | 2003 | 5.83% | 2019 | 3.94% |
| 1988 | 10.34% | 2004 | 5.84% | 2020 | 3.10% |
| 1989 | 10.32% | 2005 | 5.87% | 2021 | 2.96% |
| 1990 | 10.13% | 2006 | 6.41% | 2022 | 5.34% |
| 1991 | 9.25% | 2007 | 6.34% | 2023 | 6.81% |
Source: Freddie Mac
Extremely high prices and an overall strong economy have led the Federal Reserve to take drastic measures, implementing a rapid succession of rate increases unseen since the early 1980s.
These measures have involved four historic rate hikes of 75 basis points (0.75%), executed in June, July, September, and November of 2022. Although fixed mortgage rates are not controlled by the Fed, their actions have undeniably contributed to a significant upward push in these rates.
The budget deficit remains high, and the various inflation metrics remain above the comfort level. That means the mortgage rates will likely be in the 6% to 7% range for most of the year.
— LAWRENCE YUN, CHIEF ECONOMIST AT THE NATIONAL ASSOCIATION OF REALTORS
Many are speculating about where rates will go in the next year or two. Most forecasting models predict that mortgage rates will remain slightly above 6% in 2024, dropping even further in 2025. The Federal Reserve’s anticipated rate cuts this fall will play a significant role in driving interest rates lower, setting the stage for a more favorable market for homebuyers and homeowners alike. The next two-day FOMC meeting is scheduled for September 17-18.
As a borrower, it doesn’t make much sense to try to time your rate in this market. Our best advice is to buy when you’re financially ready and can afford the home you want — regardless of current interest rates.
Remember that you’re not stuck with your mortgage rate forever. If rates drop significantly, homeowners can always refinance later on to cut costs.
The long-term average for mortgage rates is just under 8 percent. That’s according to Freddie Mac records going back to 1971. But mortgage rates can move a lot from year to year. And some years have seen much bigger moves than others.
Let’s look at a few examples to show how rates often buck conventional wisdom and move in unexpected ways.
1981 was the worst year for mortgage interest rates on record.
How bad is bad? The average mortgage rate in 1981 was 16.63 percent.
And that’s just the average — some people paid more. For the week of Oct. 9, 1981, mortgage rates averaged 18.63%, the highest weekly rate on record, and almost five times the 2019 annual rate.
2008 was the final gasp of the mortgage meltdown. Real estate financing was available in 2008 for 6.03%, according to Freddie Mac.
Post-2008, rates declined steadily.
Until recently, 2016 held the lowest annual mortgage rate on record since 1971. Freddie Mac says the typical 2016 mortgage was priced at just 3.65 percent.
Mortgage rates had dropped lower in 2012, when one week in November averaged 3.31 percent. But some of 2012 was higher, and the entire year averaged out at 3.65% for a 30-year mortgage.
In 2018, many economists predicted that 2019 mortgage rates would top 5.5 percent. That turned out to be wrong. In fact, rates dropped in 2019. The average mortgage rate went from 4.54% in 2018 to 3.94% in 2019.
In 2019, it was thought mortgage rates couldn’t go much lower. But 2020 and 2021 proved that thinking wrong again.
Rates plummeted in 2020 and 2021 in response to the Coronavirus pandemic. By July 2020, the 30-year fixed rate fell below 3% for the first time. And it kept falling to a new record low of just 2.65% in January 2021. The average mortgage rate for that year was 2.96%. That year marked an incredibly appealing homeownership opportunity for first-time homebuyers to enter the housing market. It also resulted in a surge in refinancing activity among existing homeowners.
However, record-low rates were largely dependent on accommodating, Covid-era policies from the Federal Reserve. Those measures were never meant to last. And the more U.S. and world economies recover from their Covid slump, the higher interest rates are likely to go.
Thanks to sharp inflation growth, higher benchmark rates, and a drawback on mortgage stimulus by the Fed, mortgage rates spiked in 2022.
According to Freddie Mac’s records, the average 30-year rate jumped from 3.22% in January to a high of 7.08% at the end of October. That’s an increase of nearly 400 basis points (4%) in ten months.
As the year concluded, the average mortgage rate went from 2.96% in 2021 to 5.34% in 2022. Although, if the Fed gets inflation in check or the U.S. enters a meaningful recession, mortgage rates could come back down somewhat.
As the Federal Reserve continues its battle against inflation and edges closer to reaching its 2% target, mortgage rates have continued to indirectly climb higher. Since the Federal Reserve began its rate hikes in March 2022, the benchmark interest rate has risen 5 percentage points.
According to Freddie Mac’s records, the average 30-year rate reached 6.48% during the initial week of 2023, increasing steadily to eventually land at 7.03% in December.
The question arises: where will mortgage rates ultimately settle next year? U.S. Federal Reserve officials expect to cut interest rates two times in 2024. This move could alleviate significant upward pressure on mortgage rates, potentially leading to a more substantial rate decline. We’ll have to wait and see if rates breach the much anticipated 6% mark in 2024.
While last year saw rates soaring to unprecedented highs, 2024 has already brought a positive shift in the mortgage world. Over the past few months, rates have been gradually dropping, providing some much-needed relief for homebuyers. As we enter September, experts are even more optimistic, with the Federal Reserve poised to begin its first of two anticipated rate cuts this month. This recent downward trend signals a turning point, giving buyers and homeowners fresh hope for more favorable conditions in the months ahead.
And the earlier these rate cuts commence, the sooner hopeful buyers and those who secured mortgages in 2023 will catch a break. According to the February 2024 Mortgage Monitor report, nearly half of the individuals who purchased a home last year could benefit from a refinance if rates drop to 6% or lower.
For the average homebuyer, tracking mortgage rates helps reveal trends. But not every borrower will benefit equally from today’s competitive mortgage rates.
Home loans are personalized to the borrower. Your credit score, down payment, loan type, loan term, and loan amount will affect your mortgage or refinance rate.
It’s also possible to negotiate mortgage rates. Discount points can provide a lower interest rate in exchange for paying cash upfront.
A credit score above 720 will open more doors for low-interest-rate loans, though some loan programs such as USDA, FHA, and VA loans can be available to sub-600 borrowers.
If possible, give yourself a few months or even a year to improve your credit score before borrowing. You could save thousands of dollars through the life of the loan.
Higher down payments can shave your borrowing rate.
Most mortgages, including FHA loans, require at least 3 or 3.5% down. And VA loans and USDA loans are available with zero down payment. But if you can put 10, 15, or even 20% down, you might qualify for a conventional loan with low or no private mortgage insurance and seriously reduce your housing costs.
The type of mortgage loan you use will affect your interest rate. However, your loan type hinges on your credit score. So these two factors are very intertwined.
For example, with a credit score of 580, you may qualify only for a government-backed loan such as an FHA mortgage. FHA loans have low interest rates, but come with mortgage insurance no matter how much money you put down.
A credit score of 620 or higher might qualify you for a conventional loan, and — depending on your down payment and other factors — potentially a lower rate.
Adjustable-rate mortgages traditionally offer lower introductory interest rates compared to a 30-year fixed-rate mortgage. However, those rates are subject to change after the initial fixed-rate period. An initially low ARM rate could rise substantially after 5, 7, or 10 years.
In this post we’ve tracked rates for 30-year fixed-rate mortgages. But 15-year fixed-rate mortgages tend to have even lower borrowing rates.
With a 15-year mortgage, you’d have a higher monthly payment because of the shorter loan term. But throughout the life of the loan you’d save a lot in interest charges.
If you took out a $400,000 home loan with a 30-year fixed rate of 6.75%, you’d pay around $533,981 in total interest over the life of the loan. The same loan size with a 15-year fixed rate of just 5.75% would cost only $207,577 in interest — saving you around $326,404 in total.
Rates on unusually small mortgages — a $50,000 home loan, for example — tend to be higher than average rates because these loans are less profitable to the mortgage lender.
Rates on a jumbo mortgage are normally higher, too, because mortgage lenders have a higher risk of loss. But jumbo loan rates have reversed course and stayed below conforming rates in 2024, creating great deals for jumbo loan borrowers. Currently, a jumbo mortgage is any loan amount over $ in most parts of the U.S.
A discount point can lower interest rates by about 0.25% in exchange for upfront cash. A discount point costs 1% of the home loan amount.
For a $400,000 loan, a discount point would cost $4,000 upfront. However, the borrower would recoup the upfront cost over time thanks to the savings earned by a lower interest rate.
Since interest payments play out over time, a buyer who plans to sell the home or refinance within a couple of years should probably skip the discount points and pay a higher interest rate for a while.
Some rate quotes assume the home buyer will buy discount points, so be sure to check before closing on the loan.
Remember that your mortgage rate is not the only number that affects your mortgage payment.
When you’re estimating your home buying budget, you also need to account for:
You can also use a mortgage calculator with taxes, insurance, and HOA dues included to estimate your total mortgage payment and home buying budget.
Keep an eye on daily rate changes. But if you get a good mortgage rate quote today, don’t hesitate to lock it in.
Remember that average mortgage rates are only a general benchmark. If you have good credit and strong personal finances, there’s a good chance you’ll get a lower rate than what you see in the news. So check with a lender to see what you qualify for.
Authored By: Peter Miller The Mortgage Reports contributorPeter G. Miller, author of The Common Sense Mortgage, is a real estate writer syndicated in more than 50 newspapers nationwide. Peter has been featured on Oprah, the Today Show, Money Magazine, CNN and more.
Updated By: Aleksandra Kadzielawski The Mortgage Reports EditorAleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).